Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

AT&T Inc. (NYSE:T)

dbAccess Media, Internet & Telecom Conference Call

March 06, 2013 07:45 am ET

Executives

Pete Ritcher – Senior Vice President-Finance and Wireless Chief Financial Officer, AT&T Mobility

Operator

All right, great. Welcome to the third and final day of this year’s conference. We are glad you were all able to make it down here. It’s been a great event. So I hope it’s gone well for you as well. We are very happy to welcome back to the conference this year, Pete Ritcher. He is the Chief Financial Officer of AT&T’s Wireless business. Pete, I think you have an opening statement you need to make here and we can get into some Q&A.

Pete Ritcher

Sure, sure. Just to haul everyone’s attention to our Safe Harbor statement; the comments today, they contain forward-looking statements subject to risk. Details can be found in our SEC filings and on the AT&T investor relations website. So with that let us go.

Unidentified Analyst

Great. So it will be our typical format. I’ll ask a series of question and then we’ll open it up for questions later on. I just to remind that Pete is the Chief Financial Officer of the Mobility Business. So we’re going to keep the Q&A today around the wireless operations. Maybe to get things started, we can kind of take a picture view of the industry right here. A topic that investors have been thinking a lot about recently here are some of the transaction, a lot of proposed mergers out there and there is a debate about whether the U.S Wireless Industry is poised to become much more competitive over the next couple of years.

First of all, what’s AT&T’s view of the competitive landscape? Do you have the same view that things may heat up a bit and if so, how do you intend to stay competitive in a changing environment?

Pete Ritcher

Yeah, so I guess I would answer that by saying our industry is a very competitive industry, has been and I would anticipate it will continue to be very competitive. And the consolidation within the industry, not a big surprise to us. It’s a big capital intensive industry. Scale is important and so we know that customers choose AT&T for really a lot of reasons. And the overall customer experience is important. We focus a lot on every piece of that. So whether it’s the network experience, coverage speeds, performance, whether it’s having sort of flexible pricing plans in place, myriad of sort of cutting edge devices, we focus a lot on our best in industry sort of retail experience. So all those things together I think are what makes us successful and we think will continue to make us successful going forward.

As I said, it’s a capital intensive industry. Scale is important. We believe that we’ve got good scale. It allows us to go and make the kind of investments that we need to make into our network and into the other components for our customer experience. And so, we feel very good about where our competitive position is. We’ve got a lot more work that we’re going to be doing here in the next couple of years and you’re building out our LTE network further and improving our network experience even more than it is today, but we feel very good about that.

I think the other issue is we’ve got a lot of scale; we’ve got a large customer base there. And we’ve got roughly about 90% of our customers are customers that are on – our post paid customers are on a family talk plan, are on maybe our Mobile Share plans, which is sort of another sort of version of FamilyTalk for data or on some sort of your business plan with us. So those were plans that have very good return characteristics and we believe that having that sort of makeup of our sort of existing customers positions our self very well for any new or different competition that may come down the road. Okay.

Unidentified Analyst

Sure. So let’s think it something that’s a little bit more specific than a lot of us like to do the guessing games on our how softly can you react in the market, I don’t think any of us know and they haven’t, they haven’t their cards yet. T-Mobile has kind of shows their cards a little bit. They have announced that they will be bringing Apple products to market soon presumably that means the iPhone and their CEO has lately said that, they are going to be targeting AT&T’s iPhone customer base. You had two other competitors launched the iPhone in the past, could you talk a little bit about what the experience has been during the previous launch and whether you are anticipating some of the different behavior on your behalf because of the way T-Mobile is kind of identifying you?

Pete Ritcher

No, as you point out, we’ve been losing exclusivity on the iPhone and have not available to other carriers is not a new thing. There’s two other sort of major carriers have – they’ve gotten access about the device and married of other smaller carriers have. And contrary to, I think a lot of popular belief when the lost exclusivity, it hasn’t had a significant impact or whatever. We didn’t have significant losses of customers or whatever associated with that. I think a lot of that goes back to the competitive positioning that I was just sort of talking about.

So I think that again we’ve – having someone else have access to that device is something that we fully expect would happen, and I don't think that you’ll see any change in the way in which we sort of market and promote our products associated with that.

Unidentified Analyst

There’s not some big campaign year planning, we don't have to modify margins because you're going to spend next hours, you look at this is normal course another operator gain in the size.

Pete Ritcher

Yeah, I think this is normal operations. We are always looking at different promotions, different campaigns everything that we go through and do, but I don't have anything here to tell you the day that we're going to do in response to then getting access to some new device.

Unidentified Analyst

Sure. So let us go back and think about how you guys intend to grow your business over the next couple of years and just we have a little recap of where the industry is come from. It used to be a pure net add game that increasingly became more of a focus on growing revenue by growing ARPU. You are at the forefront of that being early with smartphones and seeing a nice growth in your ARPU, people went some feature smart. You’ve now got 70% roughly of your postpaid base on smartphones, so you still have some of this ahead of you, but how do you think about the next couple of years of driving growth and maybe talk about how some of the recent products like Mobile Share play into executing in that strategy?

Pete Ritcher

Sure. So we're very bullish still on the growth in the wireless business, I mean why should we? There is a vast amount of horizon still sort of available or whatever for growth within the wireless industry. And it's not, there’s not something I think sometimes like you think these things as black or white, or it used to be this, now it's bad or whatever, it’s a continuum that goes on there. So there is still room for postpaid traditional phones, subscriber growth for us. I'll tell you as your penetration increases, it's probably less than it used to be on new sort of growth ads coming in, but of course there’s still a lot of that and it’s more so on our ability to build – improve our churn year-over-year and retain more of the customers or whatever that we have on our network. We’ve made really good improvements on our postpaid churn over the last few years, but we have still – we believe we still have a lot of room to go, and a lot of the investments that we’re making are clearly aimed at that.

As you point out there’s also been opportunities to grow based on the movement of people into smartphones and to start subscribing to in the data plans that are associated with that, roughly 70% of our postpaid customers are in a smartphone today. But in the fourth quarter that was nearly sort of 90% of our sales. So there is still as room there to continue to improve the ARPU of those existing customers as they move into smartphones. And we think that that will continue.

I think the other issue that’s there that you mention is with the advent of our sort of Mobile Share plans that we’ve introduced. We anticipate that there will be a lot of sort of additional data devices attached to the network. We also believe that there will be continued data usage per subscriber or whatever as we have new sort of networks rolled out as we have new devices come on.

And factors we’ve got roughly about two-thirds or really little more than two-thirds of our customers are on a usage-based sort of data plan today. So we feel that we’re very well positioned those new devices come on to our network, as the usage grows on those devices, the devices that are on our network, then we have an ability to build and sort of capitalize and grow our data revenues that are associated with that. And then we’ve got a myriad of new products and services that are coming on that we think are significant revenue growth opportunities for us, sort of $1 billion a year kind of opportunities. One is our Mobile Premise Solutions which I think is sort of a wireless home phone, a replacement for wired home phone. It’s a nation-wide product selling very well and I think has the ability to generate a lot of revenue. Our Digital Life is a nation wide, all IP-based home security, home automation product. It’s going to launch in eight markets here probably later this month, and up to 50 more markets that we'll launch by the end of the year.

We're very excited about that opportunity. And then we’ve also got opportunities in the connected car area and I think that our analysts predict that I think by 2016 that will have sort of over 50% of the new car sales coming out will have some sort of connected opportunity associated with them. We feel that we're very well positioned in that area being in the sort of driver seat, if you will. I think it’s evidenced by our announcement last week or whatever of the Good morning deal that we got and there are other deals sort of associated with that. So that, I think allows us to have opportunities to grow our revenue even further. So we put all those things, sort of together and we feel very good about the growth opportunities that we have and those are just the deals that we kind of have announced today. We fully believe that our customers and the businesses here in the United States are very focused on sort of mobilizing everything.

I think one other opportunity I failed to mention is the, joint venture that we have on with Isis or whatever in mobile payments, that is also – got a couple of trials going on right now in Salt Lake City in Austin. And our ability to be able to participate in that ecosystem is something that we think has a lot of opportunity too.

So anyway, we believe that we’ve got sort of our core business and a lot of the things that are going on there. We’ve got this transformation to sort of new kinds of connections that are coming on to the network that we’ve got sort of in place and are being rolled out. And then you’ve got a pipeline of things back behind that order, but I think we will continue to really grow this industry for quite a long time.

Unidentified Analyst

A lot of color there; let me see if I can dig into some of this a little bit further and let’s go back and talk a little bit about ARPU. The postpaid ARPU you report is really a blend of phones and non-phone devices. And so, we’ve seen some deceleration in the rate of growth as you started to see lower ARPU tablets and other data devices come in, although with potentially attractive margins. How about the actual handset base? What kind of growth in ARPU are you seeing just on the phone customers right now?

Pete Ritcher

Yes, so just on phone customers, we feel that we’ll probably have 2% plus ARPU growth still on phone customers for even this year. And that’s associated primarily with the stuff that we talked about earlier about. So you still have the opportunity for people to move up into the smartphone.

We’ve got opportunities for them to go on Mobile Share plans and buy bigger buckets, those sort of things. The other, with our Mobile Share plans and other sort of data only devices of what are we getting added to the network or to have some of these Mobile Premise solution connections be added to the network. As you point out, those are lower ARPU, good margins sort of products. So they make sense for us, they give us the building to grow our top line to leverage of the scale of our business, but they will have a dilutive impact then on the overall postpaid ARPU. So you can expect us to build – to provide color kind of every quarter as we come out kind of okay here is where our overall postpaid ARPU is, but here is kind of what we are seeing that ARPU to look like if you look your traditional phone base that can give you a good comparison as to what’s going on there year-over-year.

Unidentified Analyst

I think it was pretty – when customers were primarily going from feature to smart, it was pretty easy to understand the ARPU accretion on the handset because you used to get $30, you aren’t getting (inaudible).

Pete Ritcher

Yeah.

Unidentified Analyst

What we started to try figure out is how do we make sense of smart to smart and when you are only doing unlimited, there was no incremental ARPU. Are you comfortable that by having tiered plans, that as people sort of continue to change out their smarphones, there is still an opportunity to get more ARPU out of them if that results in higher usage and are you seeing that yet?

Pete Ritcher

Yeah. I think that – that it does gives us that opportunity. Like you say it’s not sort of black and white to where it is okay I have a data plan or I don’t have data plan. And then when you already had a data plan and you are on a smartphone, the upgrade to next smartphone is really no other option there. Now you have a point of discussion when sort of customers come in and they are upgrading their device, they maybe getting a new LTE device now and they used to have sort of a 3G device. The way you have pointed a discussion there about, well let’s look at what’s your data usage is, look at the additional functionality that’s here sort of with this device, and should you move up in buckets.

And it’s also an opportunity at that same time, what you are talking about, hey do you have a tablet, you already have a tablet that has wireless connectivity, do you want to attach that to the network, do you want to buy a tablet, do you have other sort of data only devices, looking at MiFi, Pugster anything like that demand sort of going on there. So it gives an opportunity there that when you are having that routine sort of upgrade cycle, and people are coming into your stores, which is a good thing, you got people coming to you, you have got opportunities sort of touch them, show them new devices, show them new opportunities, sell them new things that we believe we have the opportunity there to as time goes on, to sort of grow that ARPU where we didn’t before mobile share plans were released.

Unidentified Analyst

Yes. I go back to sort of your discussion around what drives revenue growth over the next couple of years, really all about usage, you have created a usage based revenue model in your business, and we have been talking a little bit about what you have done there, I am interested in some of these steps you are taking maybe stimulate usage further. So for example, you are running a promotion right now on tablets, where you basically get a $100 rebate, if you buy a tablet that is connected to a data plan, which in another way of saying this is that you are putting $100 subsidy on tablets.

We have been trying to figure out whether data devices like tablets are going to permanently be subsidized or permanently unsubsidized. What’s the view you guys have right now on essentially experimenting with the subsidy, what’s been the impact, how long do you think it’s going to go on for, and do you have a view on whether you should be doing this on a somewhat permanent basis?

Pete Ritcher

Yeah. I would tell you right now that it’s just a promotion of we’ll have in place. I mean we had it there in the fourth quarter. We’ll continue it here in the first quarter. We’ll continue to sort of reevaluate it. Our competition on the tablet side, to be quite honestly it’s more versus did someone buy a Wi-Fi only device or did they buy one with connected.

And currently, there is a price differential there, one that we’d like to see sort of yet, being reduced a bit, because it probably doesn’t make sense that it should be that much based upon what additional components go into it. But we’re trying to with the promotion here to sort of bridge that gap and get people to experience the benefits of having that connected to our network and then not be sort of tied to Wi-Fi hotspots.

So I can’t answer that question right now as to whether or not that will be permanent or not. I don’t believe so. And I think that as we see more and more tablets come out, I think that we’re hopeful and encouraged that at some point in time that wireless connectivity is just sort of embedded in there and it’s kind of got one skew that we can get the components down enough to where that makes sense for everyone and then the need to be able to have any sort of subsidization [ph] there I think, have lessened.

Unidentified Analyst

Got it. All right, you mentioned earlier that a very high percentage of your postpaid customers are in family plans rather than some type of bundle or discount implying that they’re very sticky. Could you kind of walk us through what their mobile share could potentially have an incrementally positive impact on churn? I think one of the things we’ve noticed is that, each device is on its own timeframe, right? And so if we’re all in a family, but we didn’t all buy our device at the same time, my contract doesn’t necessarily expire at the same time as your; is there some anticipation that may be the staggering of that could lead to an even lower churn rates in your postpaid base?

Pete Ritcher

Yeah, hi, I think the staggering is clearly a piece. But I think probably even more importantly is that you’re increasing the number of connections and the number of relationships or what else you have with your customer, right. And so, I think that shows certain amount of loyalty from the customers to your products. I think it gives us an opportunity or whatever the more types of products and services or whatever that we can market to our existing customer base. We believe it has incremental churn benefits associated with it.

So I think the same thing we believe we’ll apply as we rollout Digital Life, as we rollout opportunities in the Connected Car area. So having more and more of those connections with our existing customers and new customers that we attract in, we believe are positive from a churn standpoint.

We just launched the Mobile Share plans in August of last year. So I don’t have any stats to give you right now on what that is and anything you would have right now would be fairly in conclusive. But we’ve had enough experience I think with Family Talk plans to know that the more connections that you get with the customer, the better churn characteristics you should have.

Unidentified Analyst

One of the reasons I was thinking about churn is, you’ve given some long-term objectives around EBITDA margin in the wireless business. You generated just inside a 40% margin last year, your objective is to expand the margins this year and then to ultimately get to a 45% margin. How important is improved churn both on achieving the near and long-term objective? And then what are some of the other significant levers that you guys intend to execute again to get to this targets?

Pete Ritcher

Yeah, well, churn is important, but I’ll tell you it’s primarily important from the standpoint that you get that stable and accelerating revenue growth or whatever within the business. I think it’s probably – it’s never been an old ad engine I think it probably still kind of holds true that it’s, it’s easier, it’s cheaper to retain the customer the news to sort of acquire new one. With sort of two-year upgrade cycles or whatever going on, I think from at least that sort of subsidy in sales component that's probably not as distinct as maybe it was sort of many years ago. But there are still a lot of other cost or whatever that associated with bringing down customers and churning them and if they leave before whatever their two-year contractors, you are as profitable, of course, those customers if have over a longer period of time.

So some churn is important the way it really plays out those in the sense of, if you can’t get your churn down, and it's a very, very hard to grow that top line it’s the kind of rate in which you really need to grow it. And why grow on the top line is so important is that, again going back to some of your comments, since the scale business, okay. So the major players here all have national network footprints, basically you got to have that to build or compete in this market.

You've got many others sort of national platform, surely they will be the number of stores which you have or billing systems which you have, or advertising budgets which you have, all those kind of good things that really don't grow at the same rate or whatever that sort of revenue growth. And so, the building that we've had to build to expand margins over the last couple of years, primarily been associated with growing that top line, while keeping those other expenses relatively flat or not growing at that same rate and sort of scaling that business.

And that's why we believe as we bring on these additional connections to although our existing customers and new that you really have that ability to scale that business and that’s what drives that improvement in margins.

Unidentified Analyst

Anytime we have the end margin discussion, we inevitably talked about smartphone sales and subsidies and the impact with that can have on the bottom line. So first of all, if you think about your goal of expanding wireless margins this year, can you help us understand what you have assumed around handset sales for example, smartphone sales. Do you expect any flag go up? How do you develop that forecast?

Pete Ritcher

Yeah, well for 2013 here, we anticipate that our smartphone sales will be up slightly from what we saw in 2012. And it’s sort of a combination of two things. We’ll probably see a little higher upgrade activity or whatever, total upgrades this year than what we saw in 2012. Our base has grown a bit, and we also – some of the benefits that we achieved from the lengthening of our upgrade, sort of policy, those benefits – we’ll see benefits in 2013 from that. But the benefits were greater in 2012 as you sort of created a bit of a trough or whatever there to go through.

And then as we point out, we see – as each quarter goes by, you see a greater and greater percentage of the sales that you have, the device sales that you have skew more to smartphones rather than non-smartphones. So the combination of those two are probably going to – we came in just [shy] of $27 million, started a smartphone device sales last year. And we believe that number will be a little higher or whatever this year.

Unidentified Analyst

And just to clarify, you mentioned you think upgrades will be up a little bit. Is that the absolute number of upgrades or the rate of upgrades or is it both?

Pete Ritcher

Yeah, I think when it comes into the rate of – most comfortable is talking about the absolute number because the rate does in that being somewhat of a function of what kind of other non-traditional devices that you bring on in R2 and how much of that contribute to your base and a lot of those, the tablets and other things that are coming on there, data only devices don’t have an upgrading cycle associated with them, so they can end up kind of skewing that sort of rate a bit.

Unidentified Analyst

So thought that upgrades could go up and the rate might go down.

Pete Ritcher

Yeah, I remain flat or be upside. So they’re going to through a function of…

Unidentified Analyst

Sure.

Pete Ritcher

There is a lot of moving pieces going on in there, okay.

Unidentified Analyst

So that’s kind of the near-term view on how subsidies impact the bottom line, what about the long-term view and the big question is, do you have any line of sight on the average device subsidy coming down overtime and to what extend can you get comfortable with that?

Pete Ritcher

Yeah. I would tell you that we feel comfortable that probably is that will occur. I think it’s more so from a standpoint of that we anticipate they all continue to be more and more competition amongst device manufacturers, amongst platforms or whatever that are there.

I think we also see at least especially in our business although I think the supply is across sort of most everyone is that we will start seeing more and more of the devices be LTE. And as time goes on, there maybe LTE only and so lot of that ends up just being scale there too. While you are still in the sort of part of these devices and part of those devices and go into manufacture, they don’t have the opportunity to develop as much scale or whatever that’s there. So I think we anticipate that we will see the prices that we pay or whatever for devices come down overtime and that should result in some lower subsidies.

Unidentified Analyst

Is that exclusively anticipated in your long-term margin guidance of getting the 45%?

Pete Ritcher

Yes, although it’s not something that we assume that is dramatic, and that is and happens like this year or happens on a cliff of phase for you, phases next year. It’s going to happen gradually overtime and we’ve built some of those assumptions or whatever in there, yes.

Unidentified Analyst

In the near-term and you eluded this before the primary way you’ve been able to manage subsidies is mostly through policies. And so you’ve talked about that a bit. I know you don’t explicitly breakout subsidy expense, but did you see any noticeable improvements, say last year, you said some of the policies were, for example, subsidy expenses, percentage of revenue did that reacted the way you had anticipated?

Pete Ritcher

Yeah, yeah, it’s I think in our business especially, some of the impacts of that are kind of lumpy from quarter-to-quarter. But yeah we saw the impacts of, it’s sort of a two-fold issue there, it’s a sort of P times Q model, right. So how many upgraded volumes and gross adds, I mean device sales are you having. And then what is that average subsidy sort of per device. And so clearly the policies that we took were more aimed at the sort of Q side of that equation.

Unidentified Analyst

Got it. You also said long-term a little more competition between platforms would be key to gain the subsidies down. We have started to see some new platforms or the return of some platforms in Blackberry and Windows. Being new in the market and of course Android continuing to gain traction, are you seeing any noticeable shift in the mix of platforms in your sales mix right now?

Pete Ritcher

Yeah, I’m not going to get into and give any numbers on what we see in our mix. But I will tell you that we’re very happy with what we’re seeing go on and obviously what we’re selling in the Apple space. we’re also very encouraged what we’ve been seeing in Android. We sold a lot of iPhones in the fourth quarter of last year. But it was also a record quarter for us for Android sales. So it’s not that the expense, one at the expense of the other. We’ve been very supportive of the Windows platform. We believe it’s a very good platform and we’re seeing adoption there. It’s a sort of a totally new platform coming in. So it’s obviously going to take some time in order to ramp up. We think there are some real good opportunities in the business side for a sort of adoption of that platform and so we’re anxious to see what happens there.

And then I’ll tell you, on Blackberry 10, we’re anxious to see what happens and what the acceptance that is by our customers. We know that’s a platform that had quite a following at one-time, still has quite a following and that we hope to see that when that new platform comes out sort of hits the marketplace or whatever, what the acceptance will be and if that creates any sort of mixed shift.

Unidentified Analyst

Got it. I’ll pause now just to see if we have any questions. We still have about 13 minutes left. We have one over here. Please wait for the microphone just for the benefit of those who are on the webcast?

Question-and-Answer Session

Unidentified Analyst

Thank you. You mentioned that one of the ways that you might be able to reduce the average subsidy per device over the long-term is to sell LTE only devices. But when I think back to prior to LTE being introduced, wasn’t that many years where all the devices that were 3G, also had 2G and won’t you need prior, I guess 3G or some other technology on the phone, so that when people travel internationally or when they go out of LTE coverage, they’ll still be able to get service.

Pete Ritcher

Yes I'm sorry, I was pointing out more than just on a scale standpoint or whatever, that if you’re selling a 100 devices and all hundred of them are LTE versus 70 of them being LTE and 30 of them being some other technology that you just got on a larger scale amount there. And that usually when you’re pumping more through those manufacturing processes, whatever you'll get better prices from that, we’ve seen that, numerous times as we go through these transition. So that I think will occur, should bring that average price for paying for those devices down over time.

Unidentified Analyst

Question on mobile data, Cisco has their mobile data, as soon as they put out every year they actually missed for the US mobile data growth estimates by about 30%, CTIA does their survey and they have pretty big deceleration in mobile data growth, one of the things that's been sided is WiFi offload. Can you speak to the degree of WiFi offered you are seeing in, among your customers particularly those that are at the top of their – approaching the top of their data caps?

Pete Ritcher

Yes, I don't know how percentage or whatever they give you but I’ll tell you for a long time we’ve – and still we take a lot of steps to sort of encourage a lot of that offload to especially in very congested areas or whatever that we go through in order to be able to sort of improve our customer experience, we are continuing to see significant growth or whatever on our cellular network even with that Wi-Fi offload.

So I think we’ve got the largest Wi-Fi network or whatever in the country, and we make that, that’s an additional benefit that we have to our customers or make a very easy in many cases sort of automatic sign on or whatever for them. And that helps us with the balance there between increasing that growth on our network and the revenue opportunities that we have with it, along with sort of offloading traffic especially in very, very congested areas that allows us to provide the best customer experience we can for all our customers.

Unidentified Analyst

Is mobile data growth on your cellular network, is that accelerating?

Pete Ritcher

From a percentage standpoint, I can’t tell you if that still is or not. As the numbers get larger and larger or whatever than those percentages, the math starts to come into play. But it’s still very significant, yes.

Unidentified Analyst

I’m actually going to follow-up on that one, because in the sense it kind of gets to the idea around managing capacity under network. We think in this industry, we use the term spectrum quite a lot to talk about the content need for carriers to add more spectrums. But if I go back to your prior comments, the growth model for your business is driving usage as you created issue for yourself where you grow revenue by encouraging people to use your network. But if they continue to using network too rapidly, you potentially went into a capacity problem. And so, I’m just wondering how comfortable do you feel with your ability to balance that right now and in particular your spectrum resources, how far do you think they get here?

Pete Ritcher

Yeah. So I think that, we’ve done over 50 spectrum deals here in the last year and we’ve filled in and improved our spectrum position in many, many, many areas as you know. We’ve signed deals that add 700 MHz AWS Spectrum. The large issue of getting the WCS Spectrum and addressing those in appearance issues or whatever which was a big win for us. We’ve also augmented some of our 850 and sort of PCS Spectrum also. So we feel that we are pretty well positioned for the spectrum needs that we have for the next sort of five years.

And will there be a need for spectrum after that and we believe that the SEC understands that. We’ll make spectrum available and that we will be able to participate in that. But we feel with the business plans we have in place, and the objectives that you outlined, regarding having growing connections on our network and the estimates that we will have in increased usage that we feel that we got the spectrum necessary for the next five years or so to handle that.

Unidentified Analyst

So you don’t see any need to may be potentially put the brakes on growth and usage any time soon based on where you are from a spectrum standpoint.

Peter Ritcher

No. I mean we will obviously work on sort of the management of that usage to make sure that we always have details with the usage and those type of things which you need to manage. But now the business isn’t about putting brakes on any growth opportunities.

Unidentified Analyst

Some of this gets back to CapEx also, in other way you add capacity to the network, you deploy infrastructure. You announced Project VIP late last year and involved nearly 10,000 of your sales guys for a significant number of that nodes and small cells. And so during the project period, capital intensity is going to be higher than it has been, it reached 20% of services revenue at peak spending levels during the project, what’s your view on long-term capital intensity in the wireless business after you guys through this project?

Pete Ritcher

Yeah. The only guidance that we have given on capital intensity has been total AT&T level. And we feel very comfortable that that long-term guidance is sort of via mid-teens as a percentage of revenue. It’s safe to say that as we allocate that capital across our business that we are going to allocate it more sort of disproportionately to our growth opportunities, and we feel if there is a lot of growth opportunities within our mobile business.

From year-to-year, those things maybe if we’re going through a technology change or whatever they maybe a little higher, when they come off the back end of one, it maybe a little lower, but I think that overall as we look forward, we think that this is a sort of mid-teens as a percentage sort of capital business and that’s what we are managing toward.

Unidentified Analyst

Also you in giving your guidance for VIP, you talk explicitly about CapEx. On the wireline side you talked about how there will be some margin pressures mainly because you are increasing your addressable footprint and somewhat fixed cost. Is there any discrete margin headwind that you are anticipating in wireless during VIP or is it principally a CapEx and tax for your operations?

Pete Ritcher

It’s primarily CapEx. Anytime you spend CapEx you have trailing expenses that come along with it, but the CapEx that we have there is on building out as LTE network densifying our network, but at the same time, we believe that that brings a lot of cost sort of synergies to still our cost of carrying that traffic over LTE network is significantly lower than carrying on our HSPA network. And so there are additional expenses to come in, if you’re dandifying your network, you have some additional expenses associated with that, but there is also network expense offsets that are going on at the same time. And I need to keep harping on it, but it allows you to grow that top line. And that's what it’s all about, and if we can make those investments, we feel comfortable that we continue to grow that top line. Then you really end up getting those scale benefits across not only that network, but those other sort of G&A components of our business and that's what feels the margin growth.

Unidentified Analyst

I think we have time for one more question on the audience if anyone has one. All right, I want go ahead and ask the last question. I want to go back to something we’re talking about before, with devices you have a huge enterprise business both in wireless and wireline one of the things that we've seen over the last couple of years is that BlackBerry has lost some of their presence there. It has been replaced by people bringing in their own devices. Do you have any view on what your enterprise customers have been doing, have they shown an increasing interest maybe in the Windows platform now that seizes in the market a bit. Are you finding that maybe BlackBerry to still be position to come back. I know internally DB has been kind of anticipating that BlackBerry won't come back and they’ve been focusing more into bringing on device concept. I am just wondering what your customers are telling you?

Pete Ritcher

Well, I'm not a front-line sort of enterprise salesperson. So I probably can’t give you lot of insight or whatever there. I do know that where our focuses on providing both our enterprise customers and our consumers with whatever they want. And I think you’ll see that there is demand, there are across all the platforms depending upon what place, each of those businesses may be. And so, I don’t have any staff to go and give you regarding kind of, what that shift has been in our enterprise business and what we expected to be going forward, okay.

Unidentified Analyst

All right. Well, if we don’t have any more questions in the audience. I think I can go ahead and thank Pete, for your time.

Pete Ritcher

All right.

Unidentified Analyst

Thanks a lot.

Pete Ritcher

Thank you very much. I appreciate it.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: AT&T's CEO Presents at dbAccess Media, Internet & Telecom Conference (Transcript)
This Transcript
All Transcripts